Author Archives: Lesley Carlson

What is Religious Exemption?

There is an old joke about an IRS auditor who calls a clergyman to confirm a large donation from a parishioner and asks, “Did Mr. Thompson donate $10,000?” The clergyman thinks a moment and replies with a smile, “He certainly will!”

The interesting thing is that while that donation is tax-deductible for Mr. Thompson, like other nonprofit organizations, the church doesn’t have to pay taxes on it, but unlike other charities, it has even less responsibility for reporting it.

So, what is religious exemption? For charities this is a big question because exemption can mean tax exemption, exemption from financial reporting, and exemption from state charitable solicitation registration in many cases.

Let’s talk about tax exemption and exemption from financial reporting to break it all up. Later we will get into religious exemption from charity registration.

Why is there a special classification for religion?

Churches are protected from government interference by the First Amendment to the Constitution. Therefore, the degree to which an organization is associated with the direct practice of religion determines their level of accountability (reporting) to the IRS and subsequently to the states.

The IRS categorizes religious charities accordingly: churches, their integrated auxiliaries, religious organizations, and other. Each type as defined by the IRS determines what level of reporting they need to do. In general, churches and their integrated auxiliaries (per the IRS) are treated differently from “religious organizations” as follows:

  1. “Church” (used as an overarching term to indicate any similar place of worship, such as a synagogue or mosque) – The IRS gives 14 attributes of a church, primarily among which is being a legally recognized organization and having a congregation and an ordained clergy (see the IRS Tax Guide for Religious Organizations Glossary);
  2. “Integrated auxiliary” is a 501(c)(3) nonprofit and public charity that is associated with a church or denomination and is internally funded, though missionary groups and youth groups do not usually need to meet this last criteria. Churches and Integrated Auxiliaries (including the definition of a missionary group) are further defined in the Code of Federal Regulations, 26 CFR Section 1.6033-2(g) & 2(h);
  3. “Religious organizations” — according to the IRS, these can include nondenominational ministries, interdenominational and ecumenical (encompassing multiple Christian faiths) organizations, and groups whose purpose is for the study or advancement of religion; and
  4. Other — If the activity of the organization is primarily secular in function when performed by other groups, the charity may not fit in the religious exemption. 7.26.2.2.1 (03-30-1999)

The biggest difference is that because of the need for the separation between church and state, churches and their integrated auxiliaries don’t have to file a Form 990, while religious organizations do. The other end of that separation is that religious organizations can do some, not substantial, issue based lobbying while churches cannot. Page 10 of the IRS Webinar on Churches and Religious Organizations: Do’s and Don’ts has a chart to help you see where you might fit by what is required of you.

It is important to know where your organization falls on this spectrum to know what is required of you at the federal level. Next, we will delve into how it affects state compliance.

This information is not intended as legal advice or instruction.

Religious Exemption from Charity Registration – Do You Qualify?

What Does Religious Exemption Mean Regarding State Compliance?

Our blog on religious exemption at the federal level started with a joke, so here we go again (sort of).

A few years ago, the show How I Met Your Mother had a running gag that Canadians were afraid of the dark. After the lights go out in a Canadian expat bar in New York and everyone complains, the exasperated and defeated Canadian on the show asserted, “Nobody likes the dark.”

And so it goes with state compliance for charities. It is fair to say that, “Nobody likes state charitable solicitation registration.” Those who have the slightest inclination that they might be exempt are eager to find that they are, but some exemption criteria are hard to understand from state to state. Religious exemption is primary among those because state definitions vary.

So, how do you tell if you’re exempt from state charitable solicitation registration?

  1. Churches and their integrated auxiliaries – In nearly every state, if not all, churches and their integrated auxiliaries are exempted from charitable solicitation registration, either by:
    1. not being included in the definition for charitable organization
      1. (ex. Mississippi for churches; Pennsylvania), or
    2. by being given a direct exemption because no 990 is required by IRS
      1. (ex. Alaska, Colorado, Minnesota)
  2. Religious organizations required to file a 990 will need to
    1. file in some states
      1. (ex. Alaska, Virginia, West Virginia); and
    2. will be exempt in others
      1. (ex. Connecticut, Rhode Island, Utah).

You may find the summary of religious exemptions provided by the National Council of Nonprofits to be helpful for you.

In addition, if you open a free, no-obligation account on Simple Charity Registration, you will find the exact wording of the state exemption questions and links to where you can find the legal definitions to assist you. Plus, if you determine that you must register or that you need to apply for exemption, or write to the state to get confirmation that you are exempt, you can proceed to do so using our 4 Simple Steps to Compliance.

We can show you that you no longer need to be afraid of the dark!

Please contact us with any comments, questions or concerns at (800)780-6027 or support@SimpleCharityRegstration.com.

This information is not intended as legal advice or instruction.

8 Common Mistakes With Charity Registration in Michigan

When we talked with the Michigan Charitable Trust Section about the exemption process for our last blog, we received a treasure trove of information on how to avoid common mistakes when submitting registration, renewal, and exemption forms to their office. We are glad to share them with you.

  1. Foreign (out-of-state) charities need a Resident Agent in Michigan. This can be a third party provider or a sister charity or even a board member.
  2. You can’t report on a time period that has not already passed. If you are doing an initial registration and you have not yet filed your financial forms, submit the registration with a letter identifying your organization’s FY end date and when your 990/Audit will be complete. Your organization will be put into a pending status until you submit the current 990.  A pending organization may solicit unless otherwise notified.
  3. Provide all necessary documentation. This is actually a sticking point with most states. Before submission, carefully check that you have all materials requested in the state’s instructions. Michigan has very thorough instructions and Simple Charity Registration also provides a checklist of required attachments.
  4. Michigan nonprofit corporations need 3 directors on their board of directors. Your Michigan-based nonprofit corporation board of directors needs to have a minimum of 3 members (unless it is a private foundation or a corporation formed to care for a dentally under-served population). Note, this is for nonprofit corporations formed under the laws of the State of Michigan and does not apply to foreign (out-of-state) charities.
  5. 990-N filers need to complete financial information on their registration form. The registration or renewal form will be incomplete without it.
  6. Don’t include Schedule B of the IRS 990. Michigan doesn’t require it, so there is no need to make it public record.
  7. Pay attention to financial audit and review requirements and that your 990 and audit/review cover the same fiscal year. Essentially, you will need to provide a review or audit by a certified public accountant (CPA) if your total contributions plus fundraising minus government grants is between $275,000-$525,000. If that figure is over $525,000 you are required to attach a financial audit prepared by an independent CPA using generally accepted accounting principles. Don’t forget to attach your IRS 990, 990-EZ, or 990-PF as well. Michigan may provide a one-time waiver to these requirements. For specifics, see the Michigan line-by-line form instructions.
  8. BONUS: 4 exemption tips in 1 for the Michigan Request for Exemption (CTS-03) form:
    1. Educational Exemption: This only applies to educational institutions located in Michigan.
    2. Hospital Exemption: An out-of-state licensed hospital applying for this exemption must show documentation from their regulator in their home state.
    3. Exemption based on getting all funds from a charity already registered with Michigan: This exemption from the Charitable Organizations and Solicitations Act (COSA) cannot be used if your organization is self-funded. It only pertains to being funded in whole by another charity registered in Michigan.
    4. Documentation: Include the necessary documentation to prove your exemption claim as explained in the chart on pages 2-3 of the Michigan Request for Exemption (CTS-03) Form.

The takeaway for today is that the Michigan Charitable Trust Section reads your application thoroughly and will request additional or corrected information if needed. Save yourself and your charity some time by filing correctly the first time.

And of course, using Simple Charity Registration can help you do just that.

Charity Registration Exemption in Michigan

If you’ve ever registered in Michigan or even looked into it, you might have been confused by their several different forms, rules, and exemption categories. Michigan has enveloped both their Charitable Solicitations and Charitable Trusts exemptions into a multi-level registration and exemption process similar to New York’s,

The Charitable Solicitations Act (COSA) requires that:

A charity that solicits or receives contributions from Michigan sources in excess of $8,000, or a charity that compensates individuals for fund raising services, must have a charitable solicitation license, unless an exemption applies. It is important to note that a Michigan Charitable Solicitation License (MICS) is required for those organizations that receive contributions even if the contributions are not actively solicited.

This is the regular charitable solicitation registration that we think of. In addition, Michigan includes registration for any Michigan charity or a foreign (out of state) charity holding assets in Michigan under a separate law, the Charitable Trusts Act (STCPA). Both laws are for the protection of Michigan residents to ensure that donor monies go to the purposes intended.

Since each law carries its own exemptions and registration requirements, charities soliciting in Michigan as described above and/or holding assets in Michigan will need to complete the Michigan CTS-03 form to help them determine which registration(s) they need to do based on which exemptions they may fall under.

While the form may seem confusing to look at, the questions are clear and the process is easy to follow.

  • An organization with no exemptions files the solicitation registration (COSA) form CTS-01 and renews with CTS-02.
  • An organization with both exemptions files the CTS-03 and does not need to file that form again (renew) after they receive the determination letter from MI that they are exempt unless and until something changes in their status.
  • An organization exempt from solicitation registration (COSA) files the CTS-03 and the CTS-05 No renewal on the CTS-03 (see above).
  • A foreign organization exempt from charitable trust registration STCPA needs to file the CTS-01 solicitation registration (COSA) and the CTS-03 Request for Exemption. No renewal for the exemption (see above). File CTS-02 for COSA renewal.

Using Simple Charity Registration will make it even easier.

If you want to know more, go to www.michigan.gov for a smart explanation of charitable trusts and charitable solicitation in Michigan.

New IRS 990-EZ Should be Helpful for Charity Registration

The IRS has prepared something special for charities this tax season by updating and annotating the 990-EZ Short Form Return of Organization Exempt from Income Tax. The updated form now includes 29 help boxes to give additional information and IRS links on questions that often trip up exempt organizations.

What is the 990-EZ?

The 990-EZ is the shortened return for Tax Exempt Organizations with less than $200,000 in gross receipts and less than $500,000 in total assets at the end of the tax year. This applies to tax exemption under 501(a), 501(c)(3) other than private foundations, and other subsections of 501(c) except those regarding black lung.

How will the New 990-EZ Help with Charity Registration?

The 990-EZ is a simpler, less-detailed report which makes it the preferred return of charities eligible to use it. Unfortunately, many state charitable solicitation registration forms require lots of additional financial information for those who don’t use the 990. The new help icons in addition to the 990-EZ Instructions provide information necessary to dissect how to correspond the 990-EZ data with the additional state questions.

Notes on Using the New 990-EZ

First, don’t be discouraged if you link to the form and can’t get the new information to pop up. The help icons won’t function unless you are accessing the form via a pdf software. Second, in their press release about the new form, the IRS reminded filers that it is still necessary to use the 990-EZ Instructions even with the help icons.

Find out More:

IRS 990-EZ Press Release

990-EZ

990-EZ Instructions

IRS Webinar on Reporting on Compensation on the 990 or 990-EZ

 

How do I know if my nonprofit is registered? Charity Registration Search

Are you trying to make sure your organization is in compliance with state charitable solicitation registration, but you do not know whether you are registered to solicit in certain states? You are not alone. If you have changed or reorganized staff, you may not know where you stand. Thankfully, most states have a charity search function that will allow you to find out easily.

Below is the most up-to-date list of charity search, sometimes called Check a Charity. You’ll see that a few of the states don’t have a search available and a couple will turn out to be pdfs that the states regularly update.

Overall, the states are making it easy to find out whether you are in compliance, and using Simple Charity Registration will make it easy and affordable to attain or remain in compliance.

State Search Site
AL https://ago.igovsolution.com/online/Lookups/Business.aspx
AK http://www.law.state.ak.us/pdf/consumer/registered_charities.pdf
AR http://arkansasag.gov/arkansas-lawyer/public-protection/column-one/charities/charities-search/
CA http://rct.doj.ca.gov/Verification/Web/Search.aspx?facility=Y
CO https://www.sos.state.co.us/ccsa/CoInquiryCriteria.do
CT https://www.elicense.ct.gov/Lookup/LicenseLookup.aspx
DC https://eservices.dcra.dc.gov/BBLV/Default.aspx
FL https://csapp.800helpfla.com/CSPublicApp/CheckACharity/CheckACharity.aspx
GA http://verify.sos.ga.gov/Verification/Search.aspx?facility=Y
HI http://ag.ehawaii.gov/charity/search.html
IL http://www.illinoisattorneygeneral.gov/charities/search/index.jsp
KS http://www.kscharitycheck.org/search.asp
KY http://ag.ky.gov/family/consumerprotection/charity/Documents/charity.pdf
LA no search
ME https://www.pfr.maine.gov/almsonline/almsquery/SearchCompany.aspx?AspxAutoDetectCookieSupport=1
MD http://sos.maryland.gov/Charity/Pages/SearchCharity.aspx
MA http://www.charities.ago.state.ma.us/
MI http://www.michigan.gov/ag/0,4534,7-164-17337_18095-45043–,00.html
MN http://www.ag.state.mn.us/Charity/CharitySearch.asp
MS http://www.sos.ms.gov/Applications/Pages/Charities-Search.aspx
MO no search
NH http://doj.nh.gov/charitable-trusts/documents/registered-charities.pdf
NJ http://www.state.nj.us/lps/ca2/charities/
NV no search
NM https://secure.nmag.gov/CharitySearch/
NY http://www.charitiesnys.com/RegistrySearch/search_charities.jsp
NC https://www.sosnc.gov/search/index/csl
ND http://sos.nd.gov/files/auto-uploads/charorg.pdf
OH http://charitableregistration.ohioattorneygeneral.gov/Charities/Research-Charities.aspx
OK https://www.sos.ok.gov/corp/charityInquiryFind.aspx
OR http://www.doj.state.or.us/charigroup/Pages/searchcharities.aspx
PA http://www.charities.pa.gov/EntitySearch.aspx
RI https://elicensing.ri.gov/Lookup/LicenseLookup.aspx
SC http://www.scsos.com/Public_Charities/Search_Charities
TN http://tnsos.org/charitable/CharitableOrgReports.php
UT http://consumerprotection.utah.gov/consumerinfo/lists.html?list=CH
VA http://cos.va-vdacs.com/cgi-bin/char_search.cgi
WA https://www.sos.wa.gov/charities/
WV http://apps.sos.wv.gov/business/charities/
WI https://www.wdfi.org/ice/berg/Registration/OrganizationCredentialSearch.aspx

What do Related Parties and Organizations Have to do with Charity Registration?

When I first started doing state charitable solicitation registration for the organization my husband and I ran, I got to Massachusetts and found lots of questions about “related parties” and “related organizations.” Being a small organization at the time, this was a completely new concept to me. If I had started registering later in our history as we developed offshoots and more complicated relationships it would have been clear. Simply put, a related party or organization is one that shares revenue or governance with your organization or that could end up with some conflict of interest.

More specifically, a “related party” is defined in Code Sec. 267 as including family members, a taxpayer and a corporation controlled directly or indirectly (through attribution from other family member stock holdings) by the taxpayer (more than 50% of the value of the stock), and a partner and a controlled (directly or indirectly) partnership. Sec. 267 also specifies other related parties, including a trust and its grantor, a trust and its beneficiary, and a personal services company and any shareholder-employee.

Related organizations are organizations that stand in a parent/subsidiary relationship, brother/sister relationship, sponsoring organization of or contributing employer to a VEBA (Voluntary Employees’ Benefit Association), or supporting/supported organization relationship.

Here are a couple of IRS links that might help understand the terms:

Exempt Organizations Annual Reporting Requirements: Related Organizations and Unrelated Partnerships (Form 990, Schedule R)

Exempt Organizations Annual Reporting Requirements – Form 990, Schedule R: Meaning of Related Organization

By asking about these relationships, Massachusetts and a couple other states are looking to see any ways in which your organization could be mishandling donations indirectly by funneling funds to other parties. For those following the rules, it is a lot of extra work, but to these states it is increased transparency for their constituents.
Thankfully, Simple Charity Registration will store that data for you and fill it in all the charitable solicitation registration documents where it’s needed every year.

State Charity Registration – Which Fiscal Year Should We File?

One of the most common questions we hear from new state charity registration filers is in which fiscal year they should file. This is not a problem for renewals, because it is clear they are reporting on the previous year. But, should an organization that has never filed in a state use the current fiscal year or the previous one?

Unlike many other questions involving state charitable solicitation registration, this one is more or less straightforward. You should file using the year of your most recently filed tax form, remembering that the states are expecting organizations to register prior to solicitation.

Let’s go through some scenarios to see what this means.

  1. A new charity that has not yet completed a fiscal year or filed an IRS 990, 990-PF, or 990-EZ would file projected information for the current fiscal year and then send the filed form to the states once it’s ready.
  2. An existing charity that has not solicited in a state in the past but anticipates doing so will register based on their most recently completed fiscal year.
  3. An existing charity that has already solicited in a state but is only recently aware of the state’s charitable solicitation requirement would file based on their most recently filed IRS 990, 990-PF, or 990-EZ. Note that some states may require you to back-file a few years. (See our blog on noncompliance).
    1. In this scenario, because the states require registration prior to solicitation, if you are near the end of your fiscal year, you would use your prior year form and then renew in a few months when your renewals are due.

Thankfully, with Simple Charity Registration you can register more easily and copy your data from one year to the next. Straightforward and Simple!

 

Giving Tuesday Resources and State Fundraising Registration

 

We all know about post-Thanksgiving consumer events such as Black Friday, Small Business Saturday, and Cyber Monday, but for the last 4 years, there has been growing interest in giving back during Giving Tuesday on the Tuesday following Thanksgiving. Started by the 92 Street Y Belfer Center for Innovation and Social Impact in 2012, Giving Tuesday has grown into a global response to donate time and money to charitable causes. This year’s event will be November 29 and is expected to top last year, which raised 1.08 million USD online from 700,000 donors in 71 countries. The social media exposure was seen by 114 billion Twitter followers, and nearly 1 million FaceBook users.

How do you get in on the success? Here are 3 great types of resources to help you participate.

1) Set up and go

Giving Tuesday: This coordinating site has many resources available to both individuals and organizations to initiate and enhance their Giving Tuesday experience.

  1. Join the movement: This is the place to get on the Giving Tuesday participant list.
  2. Local search: To find local events and organizations in a specific area — I was able to find 51 organizations to choose from in Bethesda, Maryland.
  3. Toolkits: Ideas for events, social marketing strategies, press release and outreach templates, etc.
  4. Ideas to involve local businesses, universities, and religious groups.

2) Developing a successful campaign

CauseVox walks you through a few points on how to increase the potential of your Giving Tuesday campaign and gives action steps on how to make them happen. Of note, they mention that it is a good time to try out a new tactic that can continue after November 29, if successful.

Guidestar gives additional pointers, particularly ways to maximize your contacts with your Giving Tuesday donors.

3) Legal tips

Where there is money, there are legal steps to take. The Nonprofit Law Blog does a nice job of outlining possible legal issues for participants to consider.

The most widespread of these issues is fundraising registration, otherwise known as state charitable solicitation registration. 39 states plus the District of Columbia have laws requiring that charities that solicit within their borders must register so that their operational and financial information can be available to the donating public. Many states include online and social media campaigns in their definition of solicitation.

Here’s where we can help. Simple Charity Registration facilitates registration in 3 easy steps:

  1. Determine where you need to register or renew with the guidance of our Compliance Wizard;
  2. Answer the basic information and state specific questions; and
  3. Print the completed forms and attachments, sign and send.

Please contact us with any comments, questions or concerns at (800) 780-6027 or support@SimpleCharityRegstration.com.

 

6 Facts About Minnesota’s New Charitable Solicitation Registration Forms

Important news for charities registered to do charitable solicitation in Minnesota! The Charities Division of the Minnesota Attorney General’s Office has just issued new charitable solicitation registration forms. Instead of the combined Registration and Annual Report form, they have separated the forms into two. Charities using the federal fiscal year who have received extensions will need to use the new Minnesota Annual Report forms due on August 15.

We talked with the Charities Division about some of the changes and pointers they would like to give charities registering in their state. First up are the changes.

  • Filing method: The Charities Division now offers email filing in addition to paper filing. Send your registration or annual report plus attachments to charity.registration@ag.state.mn.us in batches no larger than 25 MB and with your organization’s name as subject line. If you send more than 1 email in your batch, end the subject line with the number email of the total (e.g., 1 of 3).
  • Note: The Charities Division has no preference about whether filing is done by email or paper.
  • Payment can also be made online or by sending a check. Be sure to include your organization’s name and EIN with whatever method you choose.
    • Financial information: There are different criteria for adding your charity’s financial information in Section B of the forms. For Registration, if you file an IRS Form 990, 990-EZ, or 990-PF, you do not need to complete Section B as long as you attach your IRS Form. For Annual Reporting you can only skip Section B if you file and attach the IRS Form 990.
  • Compensation: The old form had categories of “Compensation,” “Benefits,” and “Other Compensation,” but the new forms have narrowed those to “Compensation” and “Other Compensation.” “Compensation” in this case is equal to the W-2 Form, Block 5, and anything outside of that would be “Other Compensation.”

Now, the Charities Division wants you to be careful about the following, as they are often overlooked.

    • Section B: IRS Form 990-EZ and 990-PF filers need to complete Section B on the Annual Report, including the Statement of Functional Expenses. See above for a summary of the requirements or read the form as to whether you need to complete Section B. The most common mistake organizations make is not completing it when they are required to.
      • In addition, on the Statement of Functional Expenses the Totals column A needs to match columns B+C+D, and line 25 should match Form 990-EZ line 17.
  • Two signatures and a Board Resolution are required.
  • Extensions are easy to get online.

You can find the new forms, make them into pdfs to mail along with all attachments at Simple Charity Registration, where our DIY form-fill software makes compliance with state charitable solicitation registration simple and affordable.